Land Held for Divestiture

On January 31, 2012, the Board of Directors of the Company approved a strategic decision by senior management to reposition portions of the Company's investment in the Land Development Group as part of a greater focus on core rental properties in core markets. The Company's land holdings subject to strategic divestiture are included in both fully consolidated entities and joint ventures accounted for on the equity method of accounting. As of January 31, 2012, the Company planned to retain its land investments in only two land development projects: its consolidated Stapleton project in Denver, Colorado and its Central Station project in downtown Chicago, Illinois, which was accounted for under the equity method of accounting.

Accordingly, the consolidated land assets associated with the land divestiture effort and related nonrecourse mortgage debt have been reclassified as land held for divestiture on the Consolidated Balance Sheets at January 31, 2013 and 2012. Held for sale assets are required to be recorded at fair value less cost to sell. As a result of the Company's strategic decision to divest, it dramatically shortened the estimated holding periods of the land projects held for divestiture. This reduced estimate of future undiscounted cash flows was not sufficient to recover the carrying value of the assets, resulting in an impairment charge of $115,654,000 during the year ended January 31, 2012.

During the three months ended April 30, 2012, the Company established an execution strategy relating to the land divestiture effort. For land projects that are not wholly-owned, the initial strategy was to negotiate with current partners to sell the Company's partnership interests to them, or acquire theirs, which would enable the Company to go to market with 100% ownership of the land development opportunity. The Company began preliminary discussions with numerous potential buyers ranging from large national investment funds to regional land developers as part of the divestiture strategy.

Through the competitive bid process and the negotiation process of moving from informal expressions of interest to bona fide purchase offers during the year ended January 31, 2013, the Company obtained additional information regarding the value of its specific projects as viewed by current market participants. Based on the various levels of interest from potential buyers and information obtained from preliminary sales contracts, letters of intent and other negotiations on the land projects discussed above, the Company reviewed its assumptions used to estimate the fair value of the land held for divestiture. As a result, the Company recorded an additional impairment charge of $15,796,000 during the second quarter within the year ended January 31, 2013.

The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of non-recurring impairment of land held for divestiture for the year ended January 31, 2013:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value January 31, 2013		Valuation Technique	Unobservable Input	Range of Input Values
	(in thousands)
Impairment of land held for divestiture	$	15,663	Indicative bids	Indicative bids	N/A⁽¹⁾
Impairment of land held for divestiture	$	926	Discounted cash flows⁽²⁾	N/A	N/A


(1)	These fair value measurements were developed by third party sources, subject to the Company’s corroboration for reasonableness.


(2)	The Company used a discounted cash flow technique to estimate fair value, however due to the estimated holding period being less than twelve months, the impact of discounting was deemed immaterial.

During the remainder of 2012, the Company closed on the divestiture of the majority of land projects, as discussed below. As of January 31, 2013, the Company has $2,706,000 of remaining carrying value in land held for divestiture. Ongoing negotiations continued on the few remaining land projects.

During the year ended January 31, 2013, the Company recorded the land held for divestiture activity for fully consolidated land projects and those accounted for on the equity method of accounting on their own separate financial statement line items in the Consolidated Statements of Operations. These activities primarily represent sales of bulk land projects held for divestiture, the associated cost of sales, gain on extinguishment of debt on land held for divestiture and impairment of land held for divestiture.

The following table summarizes the net gain (loss) on land held for divestiture activities of consolidated entities:



	Years Ended January 31,
	2013			2012			2011
	(in thousands)
Sales of land held for divestiture	$	74,150		$	—		$	—
Cost of sales of land held for divestiture	(56,247		)	—			—
Gain on extinguishment of debt of land held for divestiture	4,373			—			—
Net gain on closed transactions of land held for divestiture	22,276			—			—
Impairment of land held for divestiture	(15,796		)	(115,654		)	—
Net gain (loss) on land held for divestiture activity	$	6,480		$	(115,654	)	$	—

The Company's strategic decision to divest of portion of its Land Development Group included certain land development projects accounted for on the equity method. During the customary due diligence in arriving at the strategic decision, the Company had in-depth interactions with industry consultants, brokers and other land owners. Based on the due diligence, it was apparent that land values for the residential housing market continued to deteriorate in the fourth quarter of 2011, specifically in the southwestern United States. The Company revised its assumptions used to arrive at the estimate of fair value, including future discounted cash flows, comparable sales prices and market discount rates by geographic region. As a result, the Company recorded an impairment charge of $41,902,000 during the year ended January 31, 2012.

During the three months ended July 31, 2012, the Company received an unsolicited offer to purchase its ownership interest in the remaining land parcels at Central Station. The Company evaluated the offer and made a decision to divest its equity method investment in Central Station as part of its formal land divestiture activities. The proposed sale would support the continued strategic efforts to focus on core rental products in core markets and delever its balance sheet and as a result, the Company signed a letter of intent. Based on the terms of the letter of intent, the Company recorded an impairment charge of approximately $17,000,000, which is included in impairment of investments in unconsolidated entities during the year ended January 31, 2013. The divestiture of Central Station, which closed during the three months ended January 31, 2013, had a sale price of $29,525,000.

During 2012, the Company continued to market its equity method ownership interest in a land project in Albuquerque, New Mexico to several potential buyers. Mesa del Sol is a large 3,000 acre development opportunity in the beginning stage of residential land development and is not expected to generate positive cash flow in the near-term due to the expected level of development expenditures needed to prepare the first phase of lots for sale. During the extensive marketing activities, there were few buyers that expressed interest in taking on the long-term development risk, and those that were, expected larger returns than previously estimated. As a result, based on these negotiations and other market information obtained from these potential buyers and other industry data, the Company updated its assumptions used in estimating the fair value of the investment, including discount rates, absorption rates and commercial and residential land pricing. Based on the updated valuation model, the Company recorded an additional impairment charge of approximately $15,000,000, which is included in impairment of investments in unconsolidated entities during the year ended January 31, 2013.

The following table summarizes the net loss on investments in unconsolidated entities which are part of the land divestiture strategy:



	Years Ended January 31,
	2013			2012			2011
	(in thousands)
Net loss on sales of land held for divestiture of unconsolidated entities	$	(371	)	$	—		$	—
Impairment of investments in unconsolidated entities	(40,406		)	(41,902		)	—
Net loss on land held for divestiture activity of unconsolidated entities	$	(40,777	)	$	(41,902	)	$	—